Author Topic: Lump sum investing with a short runway  (Read 1791 times)

Tucker

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Lump sum investing with a short runway
« on: May 29, 2019, 01:26:34 PM »
Hello, this is my first post.

I'm 56, I sold everything I own and simplified my life.  I'm divorced, so one income.

I have 300,000 in cash and 300,000 in a 401k account, currently invested in money market.  It's not enough to retire on.

It's taken 10 years for my parent's investments to recover from the 2008 collapse (where they were in 2008 before the collapse, so no gains).

I'm concerned the market has peaked, and I'm afraid if I invest my savings in the stock market it will collapse and take me ten years to recover.

I understand the benefits of dollar cost averaging, but the descriptions usually assume investing over many decades - I don't have that much time.

With a ten year investment window, do I need to wait for a collapse?

I don't have enough to retire on, what do I do?






waltworks

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Re: Lump sum investing with a short runway
« Reply #1 on: May 29, 2019, 01:32:45 PM »
You might want to post a full case study, but long story short - if you're still in accumulation phase (which, since you say you don't have enough to retire, you are) your best bet is to get your money invested ASAP.

You can also DCA in over as long or short of a period as you want, of course. You could invest $10k a month, every month, for the next 5 years, for example.

Statistically, lump sum beats DCA. But the downside risk is greater (ie, big market crash right after you put in all your money).

But without knowing how much you need to have to retire, this is all just spitballing. Do a case study.

-W

Frankies Girl

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Re: Lump sum investing with a short runway
« Reply #2 on: May 29, 2019, 02:21:55 PM »
Saying it took your parents' investments 10 years to recover is meaningless since you don't say how they were invested. Things like what their asset allocation was, whether they panic sold or moved into different investments during that time, whether they started withdrawals at any point during that time... but I damn well guarantee that the folks that were index investors saw a recovery that took waaaaaaaaaay less time than 10 years.

It's truly impossible to use that as a guideline or anything. It shows you still have a long ways to go to getting the basics of investing down or understanding how the market works at all.

Lack of knowledge creates fear. I'd also suggest you do case study, but recommend that you need to do some very serious cram-like-its-your-final-exam type of reading over the next few months about how this stuff works, index/Boglehead investing and get your ducks in rows.

https://jlcollinsnh.com/stock-series/
^Jim Collins' book/blog. The blog is amazing and should be a great primer for anyone wanting to get this stuff figured out. His book is an edited/updated version of the blog.

https://www.etf.com/docs/IfYouCan.pdf
If You Can, by William J. Bernstein. Short, sweet, and damned near complete(ly perfect). Don't let the part where it's written for a younger generation fool you; this is gold for ANYONE of ANY age.

https://www.bogleheads.org/wiki/Main_Page
^The gospels of Bogleheads. Anything and everything you'd ever need is here.

Highlights:
https://www.bogleheads.org/wiki/Getting_started
https://www.bogleheads.org/wiki/Investment_policy_statement
https://www.bogleheads.org/wiki/Asset_allocation

Tucker

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Re: Lump sum investing with a short runway
« Reply #3 on: May 29, 2019, 08:44:30 PM »
Waltworks:      That is my fear, the market collapses shortly after I invest and I begin with loses to my equity.

                      Short answer is I'm at 600k, but would need a $1.2 million nest egg for current expenses.   I'm new to MMM and see
                      additional reductions in expenses are possible, but $1.2 million in savings for $40k a year in expenses (my current).
                      I'd like to reach the goal within 8 years.  I earn $70k a year.

Frankies Girl:  You're right, I do have a lot to learn about investing, and a large part of the fear is based on lack of knowledge. 

                     Thank you for the links, I'll begin studying them.  I haven't been tracking each dollar like many of the people on this forum, but I have made
                     significant reductions in costs:  housing, vehicle, discretionary expenses, and thought I was doing well.  New to this website and forum, I see
                     additional reductions are possible, and probably necessary.

Frankies Girl

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Re: Lump sum investing with a short runway
« Reply #4 on: May 29, 2019, 08:54:43 PM »
You totally can do this. I am the poster child for zero knowledge & pretty scared to managing my own accounts and confident enough to advise others and be super awesome at it (tongue firmly in cheek). Do take your time doing some research, ask questions until it makes sense to you and you'll be fine. :)

waltworks

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Re: Lump sum investing with a short runway
« Reply #5 on: May 29, 2019, 09:27:01 PM »
What do your SS benefits look like? Hitting $1.2 million in 8 years is going to be tough if you're saving $20k or so a year (assuming you're doing a decent job minimizing taxes and take home is ~$60k) without significant investment returns. But if you'll be collecting even minimal SS, you might be fine with quite a bit less money.

I'd DCA in $10k a month starting today. If the market takes a crap, awesome, you're buying at a discount. If it doesn't, you're not going to get the returns you would by investing the whole lump sum but at least you'll have something in there.

-W

vand

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Re: Lump sum investing with a short runway
« Reply #6 on: May 30, 2019, 03:05:20 AM »
Hello, this is my first post.

I'm 56, I sold everything I own and simplified my life.  I'm divorced, so one income.

I have 300,000 in cash and 300,000 in a 401k account, currently invested in money market.  It's not enough to retire on.

It's taken 10 years for my parent's investments to recover from the 2008 collapse (where they were in 2008 before the collapse, so no gains).

I'm concerned the market has peaked, and I'm afraid if I invest my savings in the stock market it will collapse and take me ten years to recover.

I understand the benefits of dollar cost averaging, but the descriptions usually assume investing over many decades - I don't have that much time.

With a ten year investment window, do I need to wait for a collapse?

I don't have enough to retire on, what do I do?

At the risk of sounding rather facetious, you need to earn/save more.

If investing was as simple as picking an end goal and the amount of time have to get there then this forum probably wouldn't need to exist. There are no passive investing solutions that can guarantee the outcome you want, and you are putting a massive restriction on the most important factor for any solution to work - time.

That said, you can get a lot done in 10 years even without much help from compounding. Some people have achieved full financial freedom from scratch in that time. Just a few years with a 70%+ savings rate will do wonders.

reeshau

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Re: Lump sum investing with a short runway
« Reply #7 on: May 30, 2019, 04:32:59 AM »

With a ten year investment window, do I need to wait for a collapse?


Remember, 10 years is just the beginning of your (traditional) retirement window.  you are 56--you are investing for 30 years of living.  That is plenty of runway to turn the difference of an entry point into a small detail.

To @vand 's point, it will not get you to the point where you can retire in 10 years, with "not enough" money.  The good news is that this is in your control:  both how much "enough" is--focus on your spending, and what are the most important things in your lifestyle.  Second, you need to also focus on saving to beef up your wealth.  Those will be key to outcomes in the time frame you are focused on.  By adding more savings to your wealth, you are also then, in effect, doing DCA.


PDXTabs

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Re: Lump sum investing with a short runway
« Reply #8 on: May 30, 2019, 09:27:23 AM »
I'm concerned the market has peaked, and I'm afraid if I invest my savings in the stock market it will collapse and take me ten years to recover.

I understand the benefits of dollar cost averaging, but the descriptions usually assume investing over many decades - I don't have that much time.

You absolutely want to invest it. But, like you, I couldn't stomach lump sum investing that much. I think you should dollar cost average it as quickly as you can tolerate. For me that would probably be 12-18 months. Which is to say, lump sum is on average better. But I still need to sleep at night.

dandarc

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Re: Lump sum investing with a short runway
« Reply #9 on: May 30, 2019, 09:41:04 AM »
So you need $40K / year t-o live. At a 4% withdrawal rate, that is $1 million, not $1.2. You have $600K already - put that to work and keep investing and you're likely to be close or even past that in 8-10 years. If you leave it all in cash, then you've got a real problem - losing to inflation every year is not a good plan.

A couple of other things to consider:

Do you have any pensions coming?

What are you expecting from Social Security? You're only 6 years away from "can collect" and 14 years from "collect maximum monthly amount", so that's a pretty big thing for you that isn't that far away. That $40K you need to cover might look more like $20K after social security is taken into account.


You say "not enough to retire on" but how have you come to that conclusion? You might be better off than you think.
« Last Edit: May 30, 2019, 09:48:20 AM by dandarc »

dandarc

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Re: Lump sum investing with a short runway
« Reply #10 on: May 30, 2019, 09:47:08 AM »
I'd DCA in $10k a month starting today. If the market takes a crap, awesome, you're buying at a discount. If it doesn't, you're not going to get the returns you would by investing the whole lump sum but at least you'll have something in there.

-W

+1 to this. With $600K sitting on the sidelines the most important thing is to start. Don't let perfect get in the way of good.

talltexan

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Re: Lump sum investing with a short runway
« Reply #11 on: May 30, 2019, 12:19:12 PM »
Your fear of putting it in is giving you a hint as to your own risk tolerance. 100% in VTI would be scary for you, but what about putting 30% into VTI?

You could pull the trigger on that, couldn't you?

Andy R

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Re: Lump sum investing with a short runway
« Reply #12 on: May 30, 2019, 07:29:32 PM »
I found this helpful, and Rick Ferri is one of my favourite authors.
https://www.forbes.com/sites/rickferri/2015/09/08/6-things-to-consider-when-investing-a-lump-sum/#477a787611d3

The first thing I would do is dump 40-60% in so that if the market continues to rise until the time all of your money is in and then crashes, at least you got some of the gains in the run-up instead of getting the majority in right at the peak.

DCA the rest seems reasonable, but I would also spread it out over much more than 12 months. 12 months is so short that I just don't see the point in that over dumping it all in immediately.

vand

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Re: Lump sum investing with a short runway
« Reply #13 on: May 31, 2019, 02:35:13 AM »
My personal strategy is to DCA into a more balanced multi-asset portfolio rather than a 100% stock or even 60/40 stock/bond portfolio.

The relationship between risk/reward is much more nuanced that the simple arguments put forward in most discussions, and is not linear depending on your choice of asset allocation, you should be able to find a portfolio mix with still good expected returns but much lower volatility that is neither depending on the ongoing equity bull market, and has stood up still well during severe recessions. Recommend you read the https://forum.mrmoneymustache.com/investor-alley/portfolio-charts-the-golden-butterfly/ thread to stratch under the surface a bit (or a lot more).  There is SO much good stuff on that thread.

A couple of the better known multi-asset portfolios are the "Permanent Portfolio", devised by Harry Browne in 1982, and Ray Dalio's "All Weather Portfolio".  I mean, if an investing deity like Dalio is basically recommends this type of approach to the layperson then it's probably worth sitting up and taking notice.
« Last Edit: May 31, 2019, 03:17:59 AM by vand »

Tucker

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Re: Lump sum investing with a short runway
« Reply #14 on: June 06, 2019, 10:20:16 AM »

Waltworks:     Using the SS online quick calculator, I would receive $17400 a year at 62, and $22440 a year if I wait until I'm 67.  I have assumed
                     SS will not survive, so hadn't considered including the income from it,  but it does make my goals easier to achieve.  I don't have any pensions.

Vand:  I'll add those posts and Brown/Dalio to my reading list, thanks.

Reeshau:   (expenses/savings during the next thirty years)  I am planning this now, the next step will be to relocate and build a small energy efficient, nearly
                of grid home to minimize living expenses.  Taxes, gardening, changing to a remote job, etc., structuring my life for low cost and simplicity.  This
                will increase my savings and reduce demand on my investments.

I see what all of you are saying, suck it up, expect downturns and start investing.


waltworks

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Re: Lump sum investing with a short runway
« Reply #15 on: June 06, 2019, 11:17:22 AM »
Why would you assume SS won't survive? That's bizarre. If there's anything in US politics that's basically untouchable, it's SS. We'll defund the Navy before SS goes away.

-W

PDXTabs

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Re: Lump sum investing with a short runway
« Reply #16 on: June 06, 2019, 11:25:06 AM »
SS will not survive

What evidence do you have to support this statement? Even if we do literally nothing it will be able to pay out 76% of today's benefits in perpetuity.

talltexan

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Re: Lump sum investing with a short runway
« Reply #17 on: June 06, 2019, 11:33:48 AM »
+1 on the Social Security pushback.

If you want to be cautious, plan on receiving 75% of the benefits to which you're due.

Tucker

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Re: Lump sum investing with a short runway
« Reply #18 on: June 06, 2019, 12:57:18 PM »


Why do I think SS will fail?  Case studies from attending business school. 

Essentially the SS trust fund doesn't really exist.

It's a book keeping strategy to allow current social security receipts to be spent on non-social security programs, for decades any excess SS revenue was spent on other things, and an IOU was left in the "trust fund" to account for the missing revenue.

All projections of how well the program is funded, "assumes" these IOUs will be repaid, but they can't be repaid.

This link summarizes what we studied in business school:

https://www.heritage.org/social-security/report/misleading-the-public-how-the-social-security-trust-fund-really-works



Laserjet3051

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Re: Lump sum investing with a short runway
« Reply #19 on: June 06, 2019, 01:24:27 PM »

With a ten year investment window, do I need to wait for a collapse?


Remember, 10 years is just the beginning of your (traditional) retirement window.  you are 56--you are investing for 30 years of living.  That is plenty of runway to turn the difference of an entry point into a small detail.

To @vand 's point, it will not get you to the point where you can retire in 10 years, with "not enough" money.  The good news is that this is in your control:  both how much "enough" is--focus on your spending, and what are the most important things in your lifestyle.  Second, you need to also focus on saving to beef up your wealth.  Those will be key to outcomes in the time frame you are focused on.  By adding more savings to your wealth, you are also then, in effect, doing DCA.

tucker: above poster is correct. you have a lot more runway than you believe. your first withdrawal in 10 years could be from fixed income if equity markets are down relative to your purchase price; if up. There is no guarantee that they will be down at such time.

talltexan

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Re: Lump sum investing with a short runway
« Reply #20 on: June 06, 2019, 01:30:38 PM »
Thank you for sharing the case study. I have to say that I was completely unpersuaded. The case study does not acknowledge the Federal government's ability to run a deficit, which is bad since it specifically focuses on debt. Since the Federal government runs the printing press and can run persistant deficits, its ability to repay the bonds represented by the trust fund is completely secure.

In fact, even in a period now when the Federal government is running higher deficits, we haven't seen inflation increase at all.

vand

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Re: Lump sum investing with a short runway
« Reply #21 on: June 06, 2019, 02:04:05 PM »

With a ten year investment window, do I need to wait for a collapse?


Remember, 10 years is just the beginning of your (traditional) retirement window.  you are 56--you are investing for 30 years of living.  That is plenty of runway to turn the difference of an entry point into a small detail.

To @vand 's point, it will not get you to the point where you can retire in 10 years, with "not enough" money.  The good news is that this is in your control:  both how much "enough" is--focus on your spending, and what are the most important things in your lifestyle.  Second, you need to also focus on saving to beef up your wealth.  Those will be key to outcomes in the time frame you are focused on.  By adding more savings to your wealth, you are also then, in effect, doing DCA.

tucker: above poster is correct. you have a lot more runway than you believe. your first withdrawal in 10 years could be from fixed income if equity markets are down relative to your purchase price; if up. There is no guarantee that they will be down at such time.

It's not that straightforward.

When you switch from accumulation to distribution then the game changes. Protecting from big downside shocks become the priority. Just a volatility helps you during the accumulation phase (dollar cost averaging) if you are able to steadily feed money in, so volatility harms you during distribution when you are constantly having to withdraw money out (sequence of returns risk).

This necessitates moving out of equities and holding more bonds and other assets.

So while you may be invested for 30 years, you are not really investing for 30 years.

harvestbook

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Re: Lump sum investing with a short runway
« Reply #22 on: June 06, 2019, 04:47:19 PM »
Yes, I'd definitely hinge much of my future on what the Heritage Foundation claims...

I'm your age and have less savings and I'm not worried at all.

PDXTabs

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Re: Lump sum investing with a short runway
« Reply #23 on: June 06, 2019, 05:39:11 PM »
Case studies from attending business school. 

Essentially the SS trust fund doesn't really exist.

It's a book keeping strategy to allow current social security receipts to be spent on non-social security programs, for decades any excess SS revenue was spent on other things, and an IOU was left in the "trust fund" to account for the missing revenue.

What did business school teach you about US Treasury bonds? Because that's what the SS trust fund is full of.

vand

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Re: Lump sum investing with a short runway
« Reply #24 on: June 07, 2019, 01:11:09 AM »
SS will always be around in name, but it is also an unfunded ponzi on an unsustainable trajectory.

As Greenspan famously said, we can guarantee cash benefits in any size... but we cannot guarantee the purchasing power.

https://www.youtube.com/watch?v=gqUzQjXNliU

FIREstache

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Re: Lump sum investing with a short runway
« Reply #25 on: June 07, 2019, 04:47:13 AM »


Why do I think SS will fail?  Case studies from attending business school. 

Essentially the SS trust fund doesn't really exist.

It's a book keeping strategy to allow current social security receipts to be spent on non-social security programs, for decades any excess SS revenue was spent on other things, and an IOU was left in the "trust fund" to account for the missing revenue.

All projections of how well the program is funded, "assumes" these IOUs will be repaid, but they can't be repaid.

This link summarizes what we studied in business school:

https://www.heritage.org/social-security/report/misleading-the-public-how-the-social-security-trust-fund-really-works

Ignore the negativity about SS.  There may be cuts and payroll tax increases, but it's sure to be around when you reach your full retirement age of 67.   Don't take it early as someone mentioned..

Good thread on this forum about SS:
https://forum.mrmoneymustache.com/welcome-to-the-forum/social-security-will-not-be-bankrupt/

Tucker

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Re: Lump sum investing with a short runway
« Reply #26 on: June 07, 2019, 11:14:05 AM »

Ok thanks, SS will survive.